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CDC Group, the UK-based private equity fund-of-funds operator, is to invest $250m (pound 126m) in to three Indian infrastructure and real estate funds, joining a growing list of foreign groups targeting the sectors.
The UK government-backed emerging markets specialist is teaming up with two Indian groups - Kotak and Infrastructure Development Finance - and UK-based Actis, to make its foray into the market.
"The kind of interest we're seeing in this market shows that people recognise this is an asset class that is under-capitalised and underdeveloped," said Anubha Shirvastava, CDC's portfolio director for south and south-east Asia.
Private equity investment in India has boomed over the past year, growing nearly threefold to $6.2bn in 2007 compared with a year earlier, according to figures from Thomson Financial.
Foreign firms have bought stakes in companies in industries ranging from telecoms to financial services but there is also growing interest in infrastructure as the government seeks to overhaul India 's crumbling roads, sea ports and airports, railways and power plants.
Among the biggest private sector-led initiatives, IDFC is raising in stages $5bn for its India Infrastructure Fund with support from Citigroup and Blackstone.
The UK's 3i Group has raised $1.2bn for investment in India , Deutsche Bank plans to invest $1bn over three years for Indian infrastructure and real estate and Australia's Macquarie together with State Bank of India have committed to raising another $2bn.
But even these amounts are inadequate compared with $500bn India 's government estimates it will need over the next five years.
"Foreign investment in Indian infrastructure is starting to happen but it's not as great as people would like it to be," said Sri Rajan, head of Bain & Co private equity practice in India.
Under its investment model, CDC adopts a "fund-of-funds" approach, investing in private equity funds that are targeting infrastructure or real estate.
It plans to invest $100m in IDFC's India infrastructure fund and $100m in the Actis India Real Estate Fund.It will also inject $50m in Kotak India Realty Fund.
The three funds are raising a total of $1.6bn for investment in infrastructure and real estate.
In spite of growing interest in these areas, these sectors remain among India 's most difficult operating environments. "Infrastructure can be challenging. Ideally you want to back a player that is local and works extensively with the government," said Ms Shirvastava.
